The Spillover Effects of Outward Foreign Direct Investment on Home Countries: Evidence from the United States

43 Pages Posted: 5 Jan 2015

See all articles by Jitao Tang

Jitao Tang

Ernst & Young LLP - Quantitative Economics and Statistics Group

Rosanne Altshuler

Rutgers, The State University of New Jersey - Department of Economics

Date Written: January 4, 2015

Abstract

Most studies of foreign direct investment (FDI) spillovers focus on externalities of inward FDI to host country firms. However, spillovers may also be generated from outward FDI and flow to home country firms. We test for the presence of spillovers from U.S. multinational corporations to domestic U.S. firms in the same industry, downstream industries and upstream industries using firm level information from Standard and Poor’s Compustat data and industry level data on U.S. outward FDI from the U.S. Bureau of Economic Analysis. We find evidence of positive and significant spillovers flowing from multinational customers to their domestic suppliers. This is consistent with most previous studies of spillovers from inward FDI and may suggest a role for domestic policies that subsidize outward FDI. We also find that the presence of beneficial spillovers depends on several firm characteristics including exporting status, size and absorptive capacity.

Keywords: Multinational enterprises, Foreign Direct Investment, Productivity Spillovers, Absorptive Capacity

JEL Classification: F21, F23

Suggested Citation

Tang, Jitao and Altshuler, Rosanne, The Spillover Effects of Outward Foreign Direct Investment on Home Countries: Evidence from the United States (January 4, 2015). Available at SSRN: https://ssrn.com/abstract=2545129 or http://dx.doi.org/10.2139/ssrn.2545129

Jitao Tang

Ernst & Young LLP - Quantitative Economics and Statistics Group ( email )

United States

Rosanne Altshuler (Contact Author)

Rutgers, The State University of New Jersey - Department of Economics ( email )

75 Hamilton Street
New Jersey Hall
New Brunswick, NJ 08901
United States

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